Wulff’s big idea

by David Marsh

Mon 5 Jul 2010

For a brief moment, German political orthodoxy re-asserted itself last week when a key ally of Chancellor Angela Merkel, leading regional premier Christian Wulff, was elected president of the Federal Republic.

The presidency is important in Germany not because the head of state has any real political power, but because he (only males have been in charge so far) acts a lightning rod for German public opinion and a one-man think-tank for spotting and commentating on societal trends.

Here's one big idea for the Wulff presidency: preparing Germany to take the lead in an 11-strong grouping of stable northern European states which could forge monetary union without the troublesome southerners. We could call this the North European Creditors Club. Now that would be a team to take on the rest of the world!

The presidential post became vacant after the surprise resignation in May of Horst Koehler, a former managing director of the International Monetary Fund. He stepped down because he had lost faith in his own abilities to rally -- or even interest -- public opinion on any of the big issues facing Germany.

Belying his bland image, Wulff -- who squeezed in by a hair's breadth margin in last week's vote -- has said he wishes to be an "awkward" president. Paving the way for a German-led economic bloc to split off from the southern euro fringes would be one way of achieving that reputation.

Separating Germany from the rest of Europe over the monetary question is a taboo issue in Germany. The whole point of the European integration project since the World War II has, after all, been to avoid German isolation of the sort that has all too often bedevilled European history and caused massive conflict and bloodshed. However too many commentators ignore the fact that Germany is no longer alone. German-style stability policies have not been much in evidence in the southern and western fringes of Europe, but they are very much in vogue elsewhere.

Barely noticed by the rest of the world, a batch of stable, successful and prosperous states -- all with long-running current account surpluses that indicate that they are paying their way in the world -- has now established itself in central and northern Europe. Some are in the euro area, others are not. Germany would be the leader, but it would be primus inter pares. Without a doubt, this body would be an exceedingly attractive grouping.

Inveterate critics of German policies such as Nobel prize-winner Paul Krugman and Financial Times columnist Martin Wolf are constantly berating Germany for piling up savings and not doing enough to stimulate domestic demand.

I have myself joined in the criticism of Germany for not spotting far earlier that its current account surpluses would necessarily be channelled towards financing the southern deficit states. But, to be fair, commentators need to state that the German propensity to excess savings and current account surpluses is now widely shared.

Here are, in alphabetical order, the members of the prospective North European Creditors' Club, with (in brackets, their expected current account surpluses in 2010 as a percentage of GDP and the number of years since 2000 when they recorded a current account deficit -- according to OECD statistics): Austria (3.0 - two), Belgium (2.0 - one), Denmark (3.2 - none), Finland (2.4 - none), Germany (6.0 - one), Luxembourg (6.3 - none), Netherlands (5.3 - none), Norway (16.0 - none), Sweden (6.3 - none), Switzerland (9.9 - none).

Current account surpluses are not always indicators of dramatically slow economics. GDP growth for the euro area as a whole will be nothing remarkable this year at 1.2%, according to the OECD, but the above states will all record average or above-average expansion, the OECD projects. The North European Creditors Club would be a Super-Euro area, and would justifiably run a harder currency than the other members of the present euro bloc.